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Dysfunction in Congress Poses 2013 Risks

Any deal today would deal with only some recession-causing factors and set another deadline early next year.

U.S. lawmakers hurtled toward a midnight deadline to avert hundreds of billions of dollars in tax increases and spending cuts, struggling to extract the country from a fiscal trap they created.

Even if they reach a last-minute budget agreement, it would be short of the so-called grand bargain of deficit reduction lawmakers envisioned.

Instead, a deal would be the least common denominator, blunting only some of the recession-causing policies Congress imposed as unthinkable consequences to force compromise. Further, any deal reached just before or after tonight’s deadline would set another deadline in early 2013 when lawmakers will again fight over the debt ceiling.

“Trying to settle things and trying to find common ground is more than a work of art -- it’s almost impossible,” said Ben Nelson, a Nebraska Democrat who is retiring from Congress after 12 years in the Senate. “This Congress has continued to create a level of uncertainty that is just so unfortunate.”

Senators worked through the weekend without an agreement. Senate Majority Leader Harry Reid, a Nevada Democrat, said yesterday that talks were continuing and he would provide an update as early as 11 a.m. today. He and Republican leader Mitch McConnell of Kentucky were still haggling over income tax rates, estate taxes and spending cuts as Vice President Joe Biden was enlisted to help fashion a deal.

It wasn’t supposed to come down to the final minutes. Congress and President Barack Obama created the so-called fiscal cliff of more than $600 billion in tax increases and spending cuts by enacting laws in 2010, 2011 and 2012 that shared a common deadline of January 2013.

That was part coincidence and part intentional. The idea was to force a bipartisan deficit reduction deal by making the alternative untenable for either party: simultaneous tax increases at all income levels and spending cuts that would harm national defense.

Lawmakers could then replace the sudden deficit reduction of the fiscal changes with more gradual policies. What a deal will get them instead is some deficit reduction, some economic slowdown and little clear policy about the nation’s fiscal future.

The U.S. budget deficit has exceeded $1 trillion for each of the four years Obama has been in office.

Stock Futures

U.S. stock futures rose, paring the decline indicated for the Standard & Poor’s 500 Index at today’s open. S&P 500 index futures expiring in March rose 0.3 percent to 1,388.8 at 6:09 a.m. in New York. The gain in the futures contract implies the benchmark gauge for U.S. equities will open about 0.5 percent below its Dec. 28 close of 1,402.43 when stock trading resumes. Dow Jones Industrial Average futures gained 22 points, or 0.2 percent, to 12,799.

The president and lawmakers yesterday sought to assure taxpayers and investors that a deal extending some tax cuts and other expiring provisions will happen -- if not by Jan. 1 then soon after a new Congress convenes Jan. 3.

“What’s been holding us back is the dysfunction here in Washington,” Obama said yesterday on NBC’s “Meet the Press.”

Still, the impasse has deepened concerns about another recession as the economy is showing signs of a rebound. It also has led to worries about dysfunction in Congress and Speaker John Boehner’s ability to control the Republican-led House of Representatives. Further, it could complicate Obama’s second-term agenda as he seeks an immigration policy overhaul and stricter firearms limits.

“Lord, show them the right thing to do and give them the courage to do it,” Senate chaplain Barry Black said yesterday in his opening prayer for the first Sunday session since Oct. 29, 2000, in which both the House and Senate cast votes. “Save us from self-inflicted wounds.”

Even if Congress avoids or patches the pain scheduled to take effect in January, the wrangling foreshadows more spending fights to come early in 2013.

“The public is justifiably angry, and we are putting the nation at risk,” said Ben Cardin, a Maryland Democrat.

By February, Congress will battle anew over raising the nation’s debt limit -- potentially replaying a 2011 standoff between the parties that went down to the wire, resulting in a credit downgrade and creation of the fiscal-cliff mechanism.

The Treasury Department says the U.S will run out of room to finance deficits early in 2013, and the Congressional Budget Office pegs the date as early as mid-February.

Debt Limit

Republicans are insisting on spending cuts equal to the size of the debt limit increase, a rule that created the automatic cuts set to take effect in January. Obama says he won’t negotiate on the debt ceiling; he hasn’t said what that means.

With the sequester -- the automatic spending cuts that will affect military and other programs in 2013 -- unlikely to be resolved by a last-minute deal now, Republicans and Democrats also are poised for a fight over which cuts to stop and how.

A 2 percentage point cut in the payroll tax is slated to expire, and there is a bipartisan lack of enthusiasm for its extension, meaning higher taxes will take effect for all workers with the first paycheck of 2013.

Without an agreement by midnight, taxes would rise by more than $3,400 per household in 2013, according to the nonpartisan Tax Policy Center. The tax and spending changes that would start taking effect would probably cause a recession in the first half of 2013, according to the Congressional Budget Office.

Provisions affecting businesses, inheritances and Medicare payments to doctors also would be affected if Congress doesn’t act.

Senate leaders McConnell and Reid gathered members yesterday in Washington to tell them they were at a standstill.

The sticking points included whether to extend tax cuts on family income up to $250,000 a year or to a higher threshold, and whether to press for reductions in the growth of entitlement spending now or as part of the debt-limit fight next year.

Members on both sides of the aisle expressed frustration -- and blamed the other party’s intransigence.

“We’ve known about this for two years,” said Senator Bob Corker, a Tennessee Republican. “This is a total dereliction of duty at every level.”

Ideological Extremism

Nelson of Nebraska blamed special interests, partisanship and ideological extremism that have crowded out centrist lawmakers.

“America is very functional, but Washington has become dysfunctional,” he said.

Bipartisan deficit-reduction talks have been occurring in Washington for more than two years. A proposal by leaders of Obama’s fiscal commission, led by Alan Simpson and Erskine Bowles, didn’t have enough support to advance to votes in Congress.

The debt-ceiling negotiations in 2011 yielded spending cuts, some up front and some set for 2013. They also set up a congressional supercommittee, which deadlocked.

In 2012, the House passed bills extending the tax cuts and delaying the spending cuts.

Lawmakers didn’t start cross-party talks until after the Nov. 6 election, when it became clear that Obama, the Republican-majority House and the Democratic-led Senate would have another two years staring across the table at each other.

The task of reaching a compromise fell to the Senate after earlier efforts by Obama and Boehner to make a deal collapsed.

Two weeks before the deadline, Obama and Boehner were edging toward a deal to include $1 trillion each in tax increases and spending cuts and Obama was willing to accept an inflation yardstick reducing Social Security cost-of-living increases.

Boehner, who faces a speakership election by the new Congress that convenes Jan. 3, backed away. He proposed an alternative, Plan B, to allow higher tax rates for annual income exceeding $1 million, and then scrapped the vote when it appeared his caucus wouldn’t support the tax increases.

Senator Richard Lugar, an Indiana Republican who is retiring after losing a primary election, said members in both parties have increasingly become “polarized by primary election threats” and it was impeding deal-making for the greater good.

Senator Charles Schumer, a New York Democrat, said the problem was more pronounced in the House than the Senate -- and said Boehner has been unwilling to use his power to bend House Republicans to his will.

‘Hard-Right People’

“There are 50 hard-right people in the House who don’t want to compromise,” Schumer said on ABC’s “This Week.” “I am hopeful in the new year, after Speaker Boehner is re-elected and he doesn’t have to worry about those 50, that he will start working in a way like the Senate works a little more, which is Democrats and Republicans together, a majority of each party deciding and the extreme not deciding.”

Boehner has been listening to his members, and that won’t change after he’s re-elected as speaker, said Ron Bonjean, a Republican strategist and former aide to former House Speaker Dennis Hastert of Illinois.

“Boehner and his Republican conference will have leverage over the Democrats on raising the debt ceiling,” Bonjean said. “You will see the first quarter of the year being dominated by spending cuts and entitlement reform as a permission slip for the Democrats to raise the debt ceiling.”

That suggests more roadblocks for Obama’s agenda even after his decisive re-election in November.

“Immigration is going to be a very tough issue for Republicans to tackle,” Bonjean said. “Coming off a very bruising fiscal cliff fight, pivoting to immigration is going to be more troublesome for Republicans to coalesce around the plan.”

Obama’s re-election “doesn’t mean he should get everything he wants” yet “it certainly means that everything he reasonably proposes should get a fair hearing,” said Representative Rob Andrews, a New Jersey Democrat.

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